Pulmonary Fibrosis Opportunity Assessment
Case Study Example
Guidance:
The questions in this sample case are designed to test your logical thinking, quantitative abilities, and communication skills. You are expected to:
- Apply creative problem solving and structured thinking to answer key business questions.
- Contextualize your findings throughout the case into high-level strategic implications.
- Demonstrate an interest in the healthcare and life sciences industries.
Situation:
Our client is a biotech company developing novel therapeutics for pulmonary diseases, with several agents currently in pre-clinical and clinical development. Scientists at the company have discovered a novel small molecule, Drug X, which appears to have efficacy in pulmonary fibrosis and want to explore the market opportunity.
Pulmonary fibrosis is characterized by progressive scarring of the lungs that continuously reduces functional capacity. Pulmonary fibrosis is more common in elderly patients and has varying levels of severity. One driver of pulmonary fibrosis is an auto-immune reaction, in which the immune system attacks the body, causing scarring of the lungs. Drug X acts by binding to and inhibiting immunoglobulins in the lungs, which prevents the immune system from attacking and scarring the lungs.
*Please keep in mind that there are innovation factors and market dynamics that continually change every day and that this is a practice case study example from the past.*
An appropriate response may include:
- Patient Perspectives: patient population and unmet need
- HCP Perspective: need for disease education, preferred treatment options, likelihood of usage vs. competitors
- Payer Perspective: pricing, health economics, market access components
Relevant data:
- Prevalence
- Under 60 (non-elderly): 30/100,000
- Over 60 (elderly): 120/100,000
- Severity
- Severe: 25% (across all ages)
- Mild/Moderate: 75% (across all ages)
- Diagnosis Rate
- 1 out of every 6 patients with severe disease is diagnosed
- 1 out of every 9 patients with mild/moderate disease is diagnosed
- Treatment Rate
- Total Treatment Rate = 85% due to general poor prognosis of disease
- Market Share
- Drug X is expected to only be able to capture 20% of the total market
Calculations:
- Demographics:
- Population: 320,000,000 in the U.S. (assume even distribution of ages, from 0-80 years old)
- Over 60 years old: 320,000,000 x 25% = 80,000,000
- Under 60 years old: 320,000,000 x 75% = 240,000,000
- Prevalence
- Over 60: 80,000,000 / 100,000 * 120 = 96,000 patients
- Under 60: 240,000,000 / 100,000 * 30 = 72,000 patients
- Total: 96,000 over 60 + 72,000 under 60 = 168,000 patients total
- Severity
- Severe: 168,000 total patients x 25% severe = 42,000 total severe
- Mild: 168,000 total patients x 75% mild/moderate = 126,000 total mild/moderate
- Diagnosis
- Severe: 42,000 severe patients x 1/6 diagnosis rate = 7,000 severe diagnosed patients
- Mild: 126,000 mild patients x 1/9 diagnosis rate = 14,000 mild diagnosed patients
- Total: 7,000 severe patients + 6,000 mild patients = 21,000 total patients
- Treatment Rate
- Total: 21,000 total patients x 85% treatment rate = 17,850 treated patients (allow to round to 18,000)
- Total Addressable Patient Population
- Total: 18,000 treated patients x 20% market share = 3,600 total addressable patients
Response may include:
- Competitors on the market
- Value to payers / patients
- Cost of development / production of Drug X
Relevant information to request/consider:
- Revenue: Assume Drug X will be priced around $100,000.
- Fixed Costs:
- R&D: $600,000,000
- Regulatory: $50,000,000
- Capital Expenditure (Factory set up, sales force recruitment, initial marketing campaign, etc.): $100,000,000
- Variable Costs:
- COGS (cost of goods sold): 25% (or 75% margin)
- SG&A (selling, general, & admin, i.e. sales force salary, ongoing marketing, maintenance, etc.): $80,000,000 / year
Calculations:
- Revenue: $100,000 per patient per year * 3,600 patients = $360,000,000 in revenue per year
- Fixed Costs:
- $600,000,000 R&D + $50,000,000 Regulatory + $100,000,000 CapEx = $750,000,000 Total Fixed Costs
- Variable Costs:
- 25% COGS x $360,000,000 total revenue = $90,000,000 in COGS / year
- $80,000,000 SG&A + $90,000,000 COGS = $170,000,000 in variable costs / year
- Profitability:
- Net income:
- $360,000,000 Annual Revenue – $170,000,000 variable costs = $190,000,000 net income / year
- Break even calculation:
- $750,000,000 fixed costs / $190,000,000 net income per year = 3.95 years to break even
- Net income:
Response may include:
- Calculation assumptions: compliance (patients will not take 100% of their prescribed pills), ramp up of market penetration
- Competitor reactions: competitor marketing in anticipation of Drug X launch, price undercutting by competitors